The Pound New Zealand Dollar (GBP/NZD) exchange rate is trending higher this morning as downbeat market sentiment saps demand for the perceived-riskier New Zealand Dollar (NZD). Over the past week, the exchange rate rose then fell following UK inflation data.
What’s Been Happening: Sterling Firms on Rate Hike Optimism
The Pound (GBP) began the week trading up against the ‘Kiwi’ on bullish expectations for the Bank of England (BoE) to hike interest rates aggressively. The BoE’s Huw Pill intimated on Monday that such a strategy may be necessary.
High grocery price inflation encouraged such expectations, and Wednesday’s overall inflation data inspired additional tailwinds. However, Sterling subsequently lost support as a 50bps rate hike in August was deemed less likely due to weakness in the economy.
NZD was able to capitalise on GBPs losses in the Pound New Zealand Dollar exchange rate, climbing in the second half of the week despite persistent risk-off sentiment.
NZ commodity prices increased, lending upside, while expectations for the Reserve Bank of New Zealand (RBNZ)’s policy tightening strategy remained bullish.
Analysts at ANZ predicted that the central bank will hike interest by 50bps in both July and August rather than just the former, and expects 25bps hikes in October and November.
Three Things to Watch Out for This Week
- BoE Gov Bailey Speech
Bank of England Governor Andrew Bailey will speak tomorrow at the Sintra Forum, a policy discussion in Portugal between the BoE, European Central Bank (ECB) and Federal Reserve. If Bailey strikes a hawkish tone, GBP may rise.
- NZ Business Confidence
ANZ business confidence is expected to have fallen in June, as Thursday’s data is likely to reveal. If forecasts are correct, the ‘Kiwi’ could tumble.
- Finalised UK GDP
The UK’s finalised GDP prints on Thursday: if economic growth slowed in Q1 by more than initially thought, Sterling will likely weaken against its peers.
External factors could also direct GBP/NZD movement ahead: if tensions remain high in UK Parliament, the Pound could sink on volatile trading conditions.
Meanwhile, a risk-off mood may subdue NZD further, exacerbated by fears of a global recession.